"Daily steel production in China was almost 2.2 million tonnes per day which was the second highest this year and annualised would be about 800 million tonnes," he said.

"That compares to steel production last year in China of 720 million tonnes so it's a huge increase in steel production."

Premier Colin Barnett says it is good news.

"The stronger the iron ore price, the stronger any mineral price and the lower the Australian dollar, the better it is for the bottom line and the outcome of the state budget so certainly this helps our budget," he said.

Mr Kirchlechner says despite the rise, the government must be prepared for more volatility.

"It's really driven by the inventory levels in China's supply chain and that's really amplified by the size of the economy," he said.

"Because of such a large amount of steel production there's easily an under and over shooting and therefore prices just keep going up and down."